Currency
Prophet at Stage3Alpha: "5 US Banks Have $40 Trillion Each in
Derivatives"
9/24/2014
5 U.S.
Banks have $40 Trillion Each in Derivatives
Posted by Currency Prophet on September 24, 2014 at 8:53pm
Sentinel Alerts For The Economic Collapse
9.24.14 – 5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives
Posted by Currency Prophet on September 24, 2014 at 8:53pm
Sentinel Alerts For The Economic Collapse
9.24.14 – 5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives
- When is the
U.S. banking system going to crash? I can sum it up in three
words. Watch the derivatives. It used to be only four, but now
there are five “too big to fail” banks in the United States that each have
more than 40 trillion
dollars in exposure to derivatives.
Today, the U.S.
national debt is sitting at a grand total of about 17.7 trillion dollars, so
when we are talking about 40 trillion dollars we are talking about an amount of
money that is almost unimaginable.
|
And
unlike stocks and bonds, these derivatives do not represent “investments” in
anything.
They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future. |
- The truth
is that derivatives trading is not too different from betting on baseball
or football games. Trading in derivatives is basically just a form
of legalized gambling, and the “too big to fail” banks have transformed
Wall Street into the largest casino in the history of the planet.
- When
this derivatives bubble bursts (and as surely as I am writing this it
will), the pain that it will cause the global economy will be greater than
words can describe.
- If
derivatives trading is so risky, then why do our big banks do it?
- The answer
to that question comes down to just one thing.
- Greed.
- The “too big
to fail” banks run up enormous profits from their derivatives
trading. According to the New York Times, U.S. banks “have
nearly $280 trillion of derivatives on their books” even though the
financial crisis of 2008 demonstrated how dangerous they could be…
American banks
have nearly $280 trillion of derivatives on their books, and they earn some of
their biggest profits from trading in them. But the 2008 crisis revealed how
flaws in the market had allowed for dangerous buildups of risk at large Wall
Street firms and worsened the run on the banking system.
The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.
The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.
- But all
computer models are based on assumptions.
- And all of
those assumptions were originally made by flesh and blood people.
- When a
“black swan event” comes along such as a war, a major pandemic, an
apocalyptic natural disaster or a collapse of a very large financial
institution, these models can often break down very rapidly.
- For
example, the following is a brief excerpt from a Forbes article that
describes what happened to the derivatives market when Lehman Brothers
collapsed back in 2008…
Fast forward to
the financial meltdown of 2008 and what do we see? America again was
celebrating. The economy was booming. Everyone seemed to be getting wealthier,
even though the warning signs were everywhere: too much borrowing, foolish
investments, greedy banks, regulators asleep at the wheel, politicians eager to
promote home-ownership for those who couldn’t afford it, and distinguished
analysts openly predicting this could only end badly. And then, when Lehman
Bros fell, the financial system froze and world economy almost collapsed. Why?
The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.
The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.
- After the
last financial crisis, we were promised that this would be fixed.
- But instead
the problem has become much larger.
- When the
housing bubble burst back in 2007, the total notional value of derivatives
contracts around the world had risen to about 500 trillion dollars.
- According
to the Bank for International Settlements, today the total notional value
of derivatives contracts around the world has ballooned to a staggering
710 trillion dollars ($710,000,000,000,000).
- And of
course the heart of this derivatives bubble can be found on Wall Street.
- What I am
about to share with you is very troubling information.
- I have
shared similar numbers in the past, but for this article I went and got
the very latest numbers from the OCC’s most recent quarterly report.
As I mentioned above, there are now five “too big to fail” banks that each
have more than 40 trillion dollars in exposure to derivatives…
- JPMorgan
Chase
- Total
Assets: $2,476,986,000,000 (about 2.5 trillion dollars)
- Total
Exposure To Derivatives: $67,951,190,000,000 (more than 67 trillion dollars)
- Citibank
- Total
Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)
- Total
Exposure To Derivatives: $59,944,502,000,000 (nearly 60 trillion dollars)
- Goldman
Sachs
- Total
Assets: $915,705,000,000 (less than a trillion dollars)
- Total
Exposure To Derivatives: $54,564,516,000,000 (more than 54 trillion dollars)
- Bank
Of America
- Total
Assets: $2,152,533,000,000 (a bit more than 2.1 trillion dollars)
- Total
Exposure To Derivatives: $54,457,605,000,000 (more than 54 trillion dollars)
- Morgan
Stanley
- Total
Assets: $831,381,000,000 (less than a trillion dollars)
- Total
Exposure To Derivatives: $44,946,153,000,000 (more than 44 trillion dollars)
- And it
isn’t just U.S. banks that are engaged in this type of behavior.
- As Zero
Hedge recently detailed, German banking giant Deutsche Bank has more
exposure to derivatives than any of the American banks listed above…
·
Deutsche has a total derivative exposure that amounts to €55 trillion or just
about $75 trillion. That’s a trillion with a T, and is about 100 times greater
than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same
as the GDP of… the world.
- For those
looking forward to the day when these mammoth banks will collapse, you
need to keep in mind that when they do go down the entire system is going
to utterly fall apart.
- At this
point our economic system is so completely dependent on these banks that
there is no way that it can function without them.
- It is like
a patient with an extremely advanced case of cancer.
- Doctors can
try to kill the cancer, but it is almost inevitable that the patient will
die in the process.
- The same
thing could be said about our relationship with the “too big to fail”
banks. If they fail, so do the rest of us.
- We were
told that something would be done about the “too big to fail” problem
after the last crisis, but it never happened.
- In fact, as
I have written about previously, the “too big to fail” banks have
collectively gotten 37 percent larger since the last recession.
- At this
point, the five largest banks in the country account for 42 percent of all
loans in the United States, and the six largest banks control 67 percent
of all banking assets.
- If those
banks were to disappear tomorrow, we would not have much of an economy
left.
- But as you
have just read about in this article, they are being more reckless than
ever before.
- We are
steamrolling toward the greatest financial disaster in world history, and
nobody is doing much of anything to stop it.
Source:
theeconomiccollapseblog.com, X22Report.Com
